Category: RSU

Selling RSU shares is not the end of the tax story. How your cost basis is reported can result in paying taxes on income that was already taxed at vesting. Here is what to look for and how to protect yourself.

  When you sell RSU shares, your broker sends you a 1099-B reporting the proceeds. What that form shows for your cost basis determines how much of your gain is subject to capital gains tax. The problem is that brokers frequently report an incomplete cost basis for RSU shares, which can make it look like your entire sale proceeds are taxable as a gain, even though a significant portion was already taxed as ordinary income when the shares vested. This is one of the most overlooked and consequential tax issues in equity compensation planning for women in tech, and it is entirely avoidable with the right records and a clear understanding of how cost basis works for RSUs.

What Cost Basis Means for RSUs

Cost basis is the starting value used to calculate your gain or loss when you sell an asset. For most investments, your cost basis is what you paid for the asset. RSUs are different because you did not pay anything for the shares. They were granted to you as compensation and delivered at vesting. For RSU shares, your cost basis is the fair market value of the shares on the date they vested. This is the same value that was treated as ordinary income on that date and included in your W-2. You have already paid income tax on that amount. It is not taxable again. When you sell the shares, only the difference between your sale price and your cost basis is subject to capital gains tax. If you sell for more than the vest-date value, you have a gain. If you sell for less, you have a loss.

Why the 1099-B Can Understate Your Cost Basis

Brokers are required to report cost basis information on the 1099-B they send you after a sale. For RSU shares, however, the rules around what brokers are required to include have historically created gaps. For shares that vested before a certain date, brokers were not required to report cost basis information to the IRS at all, only the gross proceeds. For more recently vested shares, brokers may report a cost basis, but they may report only what was paid for the shares, which for RSUs is zero, rather than the fair market value at vesting that should serve as your actual cost basis. The result is a 1099-B that shows your full sale proceeds with an incomplete cost basis. If you simply enter that information as reported without adjustment, your tax software or preparer will calculate a capital gain on the full proceeds, even though a large portion of that amount was already reported as income on your W-2 and taxed accordingly. This is not an error that the IRS will automatically correct. It is a reporting limitation that puts the responsibility on you to report the correct cost basis and explain any adjustments on your return.

Short-Term vs. Long-Term Capital Gains on RSU Shares

Once you understand that your cost basis is the vest-date fair market value, the next question is how any additional gain above that value is taxed. The answer depends on how long you held the shares after vesting. Shares sold within one year of the vest date produce a short-term capital gain on any appreciation. Short-term gains are taxed at ordinary income rates, the same rates that apply to your salary. Shares held for more than one year after the vest date produce a long-term capital gain on any appreciation. Long-term capital gains rates are generally lower than ordinary income rates for most taxpayers, though the specific difference depends on your income level and tax situation. The holding period clock starts on the vest date, not the original grant date. This is an important distinction. A grant made several years ago does not mean the shares automatically qualify for long-term treatment. Each tranche of shares starts its own holding period clock on the date those specific shares vested.

How to Report RSU Sales Correctly

When you sell RSU shares and receive a 1099-B with an incorrect or incomplete cost basis, you will need to adjust the reported cost basis on your tax return. This typically involves reporting the sale on Schedule D and Form 8949, entering the proceeds as shown on the 1099-B, and then adjusting the cost basis to reflect the correct vest-date fair market value. To make this adjustment accurately, you need records of your vest events, specifically the dates shares vested and the fair market value of the stock on each of those dates. Most equity platforms such as Fidelity, Morgan Stanley, Schwab, and Carta maintain this information in your account history. Your W-2 should also reflect the total RSU income reported for the year, which can serve as a cross-check. If you used a share-withholding method to cover taxes at vest, a portion of your shares was sold at vesting to cover tax obligations. These transactions are typically reported on a 1099-B as well. Because the sale usually occurs at or near the vesting price, the resulting gain or loss is often minimal, but the transaction still needs to be reported.

Keeping Records That Protect You

The foundation of reporting RSU sales correctly is having clear records of each vest event. For every vest, it is worth documenting the vest date, the number of shares that vested, and the fair market value per share on that date. Your brokerage or equity platform typically stores this information, but having your own records is a useful backup, particularly if you change brokers or if records are difficult to retrieve years later. If you have had RSU vests across multiple years and have not been tracking this, it is worth reconstructing the record now while the information is still accessible. Your W-2s from prior years and your equity platform transaction history are the primary sources.

Your employer withholds taxes when your RSUs vest. For many high earners in tech, that withholding is not enough. Understanding why the gap exists and how to get ahead of it is one of the most practical things you can do for your finances.

  Tax season catches a lot of women in tech off guard. Not because they did anything wrong, but because the way RSU income is withheld does not always match the amount actually owed. The result is a balance due at filing, sometimes a significant one, and in some cases an underpayment penalty on top of it. This post explains how RSU tax withholding works, why it commonly falls short for high earners, what factors determine your actual tax liability at vest, and what you can do to get ahead of it before your next vest date.

RSUs Are Taxed as Ordinary Income at Vesting

When your RSUs vest, the value of the shares on that date is treated as ordinary income by the IRS. It is added to your taxable income for that year exactly the same way your salary is, and it is subject to federal income tax, state income tax where applicable, Social Security tax, and Medicare tax. This happens whether you sell the shares immediately or hold them. The taxable event is the vest date, not the sale date. If you hold the shares and the price drops the following week, you already owe tax on the value they had when they vested.

How Employers Withhold RSU Taxes

Most employers withhold taxes at vest using one of two methods: share withholding, where a portion of your vesting shares is sold automatically to cover taxes, or cash withholding from a payroll account. In either case, the employer is required to remit taxes on your behalf at the time of vesting. The amount withheld is typically based on the federal supplemental wage withholding rate. For most RSU income, this is currently 22%, regardless of your actual marginal tax bracket. Once total supplemental wages exceed a certain threshold in a calendar year, a higher rate may apply. Your state may also have its own supplemental withholding rate that your employer uses. The important thing to understand is that supplemental withholding rates are flat rates applied uniformly. They are not calculated based on your individual tax situation, your total income for the year, your filing status, or any deductions you may have. They are a starting point, and for many high earners, they are not the ending point.

Why the Withholding Gap Exists

For employees whose total income puts them in a higher federal tax bracket than the supplemental withholding rate, there will be a gap between what was withheld and what is actually owed. This gap does not disappear. It shows up as a balance due when you file your return. Several factors can widen this gap meaningfully. A high base salary means your RSU income layers on top of earnings that are already pushing you into higher brackets. A large vest event in a single calendar year can result in a substantial amount of income being recognized at once. If you have multiple vests across the year, the cumulative effect can be significant. And if you live or work in a high-tax state, state income tax adds another layer that supplemental withholding may not fully cover. None of this is a penalty or an error. It is simply how the system works when flat withholding rates are applied to income that varies widely in size and timing across taxpayers. The responsibility to address any gap falls on you, not your employer.

Estimated Tax Payments

One of the most effective ways to address the withholding gap is through estimated tax payments. The IRS requires taxpayers to pay taxes as income is earned throughout the year, not just at filing. If your withholding does not cover enough of your tax liability, you may be required to make quarterly estimated payments to make up the difference. Estimated payments are made directly to the IRS, and to your state tax authority if applicable, on a quarterly schedule. The due dates fall in April, June, September, and January of the following year. Missing these payments or underpaying them can result in an underpayment penalty, which is separate from the tax itself. Whether estimated payments make sense for your situation depends on your total income, your existing withholding from salary, and the size and timing of your vest events. A financial planner or CPA can help you calculate whether you are on track or whether adjustments are needed.

Adjusting Your W-4 Withholding

Another option for addressing the gap is to adjust your W-4 with your employer to withhold additional federal income tax from each paycheck. This does not change the withholding on your RSU income directly, but it increases the total amount withheld from your compensation across the year, which can offset the shortfall from RSU vests. This approach works well when your vest events are relatively predictable and your salary income is consistent. It spreads the additional withholding across pay periods rather than requiring a lump-sum estimated payment after each vest. The right additional withholding amount depends on your individual tax situation and is worth calculating carefully rather than estimating.

California and Other High-Tax States

State income tax adds another layer to the RSU tax picture that is often underestimated. Just like federal taxes, RSU income is taxed as ordinary income at vesting, and states such as California, New York, New Jersey, and Oregon apply their own income taxes to that income. If you live or work in one of these states, your total tax liability at vest includes both federal and state taxes. State withholding on RSU income is often based on flat supplemental rates, which may not fully cover your actual liability, especially for high earners. It is also important to understand how states source RSU income. For example, California allocates RSU income based on where you performed services during the vesting period, and other states apply similar sourcing rules, although the methodology can vary. This can create complexity if you moved into or out of a specific state while your RSUs were vesting, and may result in income being taxed by more than one state. Guidance from a tax professional familiar with multi-state equity compensation can be valuable in these situations.

What to Do Before Your Next Vest

The most useful thing you can do is look ahead rather than wait for the tax bill to arrive. Before a significant vest event, it is worth reviewing your expected total income for the year, estimating your likely tax liability, and comparing that to what your employer will withhold at vest plus your regular payroll withholding. If there is a meaningful gap, you have options: make an estimated payment after the vest, adjust your W-4 to withhold more from your salary going forward, or set aside the estimated difference in a liquid account so it is available when you file. The right approach depends on your cash flow, the timing of your vests, and your overall financial picture. Working through this calculation with a financial planner or CPA before a large vest is one of the highest-value conversations you can have around your equity compensation.

At a pre-IPO startup, vesting on a schedule does not automatically mean your equity has value you can access. Double trigger vesting changes the picture in ways that are worth understanding before you make career or financial decisions based on equity you believe you have earned.

  If you work at a private company or pre-IPO startup, your RSU grant agreement may contain language you have not fully examined. Double trigger vesting is one of the most important and least-discussed structures in startup equity compensation planning. It affects when you can actually access your shares, and in some scenarios, whether you ever can. This post explains what double trigger vesting is, why companies use it, what it means for your financial planning, and what questions to ask before making any decisions that factor in your unvested or vested equity at a private company.

What Double Trigger Vesting Means

Standard RSU vesting at a public company has one trigger: time. Stay employed long enough, and shares vest. With double trigger vesting, there are two separate conditions that must both be met before shares vest and become accessible to you. The first trigger is typically time-based, just like a standard vesting schedule. You remain employed at the company for a defined period, and shares accrue over that time. The second trigger is a liquidity event. This is usually a company acquisition, merger, or an initial public offering. Until this event occurs, the shares that have technically accrued under the first trigger remain inaccessible. You cannot sell them, transfer them, or in many cases even know with certainty what they will be worth.

What Happens to Your Equity in an Acquisition

This is where double trigger vesting becomes most consequential for individuals, and where the details of your specific grant agreement matter. In an acquisition, outstanding RSUs may be handled in several ways. The acquiring company may assume or convert the awards into its own equity plan. Unvested RSUs may be cashed out based on the transaction value or continue vesting under new terms. In some cases, unvested shares may be forfeited if vesting conditions are not met, depending on the terms of the equity plan and the transaction. A double trigger provision generally provides that if a change in control occurs and you experience a qualifying termination (such as termination without cause or resignation for good reason) within a specified period, unvested shares will accelerate and vest. Not all grant agreements include this provision. Even when they do, the definitions of qualifying termination and the applicable time window determine how it applies. Reviewing your grant agreement is necessary to understand how your equity will be treated in a transaction.

What Happens If the Company Never Has a Liquidity Event

This is the scenario that is least often discussed but most worth understanding. Not every startup reaches an IPO or acquisition. Some companies operate privately for many years. Others shut down, merge on unfavorable terms, or simply never create a liquid market for their shares. If you have RSUs at a private company and no liquidity event occurs, those shares may not produce any financial value for you regardless of how long you stayed or how many shares technically accrued. This does not mean your time was not compensated. Your salary, experience, and career growth were real. But the equity portion of your compensation remains theoretical until a liquidity event occurs. This is an important distinction when thinking about total compensation. At a public company, RSUs that vest have immediate, measurable value. At a private company with double trigger vesting, the equity portion of your compensation involves meaningful uncertainty that is worth factoring into your financial planning rather than treating as a given.

Questions to Ask About Your Grant Agreement

If you are at a private company and have not reviewed your grant agreement in detail, these are the questions worth finding answers to: Does my grant include double trigger vesting? Not all private company RSU grants include this provision. Some grants provide no acceleration, while others include single-trigger acceleration in specific circumstances. Your grant agreement will define how vesting is treated in a change in control. What qualifies as a liquidity event under my agreement? The definition matters. Some agreements specify only an IPO. Others include acquisitions, mergers, or secondary sales. The broader the definition, the more scenarios could trigger your second condition. Is there a change-in-control acceleration provision? If you are terminated or your role changes materially following an acquisition, do your unvested shares accelerate? If so, what is the window during which that protection applies? What happens to my vested shares if I leave before a liquidity event? If you leave before a liquidity event, your vested but unsettled RSUs typically remain subject to the company’s settlement terms. You may need to wait until a liquidity event to receive shares or cash, and the outcome depends on your specific grant agreement.

  When you are granted RSUs, your grant agreement determines how and when the shares become yours. This matters to you because until they vest, the shares are not yours.  

  Vesting schedules vary by company. This post walks you through the most common vesting schedules that you might encounter, what each one means for your personal financial planning, and what to watch out for with each type.

What Vesting Actually Means

In simple words, vesting is how you earn your shares over time. On your grant date, you are awarded a specific number of shares. But you do not own them yet. They become yours over time by meeting specific conditions, usually staying employed at the time of vesting. In some cases, particularly with private companies, you might need to meet more than one condition, usually that the company gets acquired or has an IPO. This is called double trigger vesting, and I will expand more on this in the next post. Each time new shares vest, two things happen: you own the shares outright, and you owe income taxes. Vesting is not just the day you receive the shares, it is also a tax event, and planning around it is important.

The Four-Year Vesting: One Common Structure in Tech

The most common vesting schedule in tech is a four-year schedule with a one-year cliff. This means that you do not have any shares vesting for the first year, then a portion vests at your one-year mark with the company. If you leave before your one-year anniversary, you leave with no shares. After the first year, the remaining shares vest gradually, typically monthly or quarterly, over the following three years. While four years is standard, the vesting structure (meaning, how many shares you receive on different vesting dates) varies significantly by company. For example, Amazon back-loads its vesting with a higher portion vesting in years three and four, Google front-loads its vesting with more shares vesting in year one and fewer shares gradually vesting over the next years, and Meta vests evenly with 25% vesting after the first year and quarterly over the next three years.

Performance-Based Vesting

Your company might offer you shares based on performance, tied to either company-wide metrics such as revenue targets, or to individual performance goals. So, the number of shares you receive can vary. If you hit your performance goals, they will deliver 100% of the shares, if you exceed your target, they might deliver more shares (although this is not always true), but if you fall short, you are likely to receive fewer shares, or even no shares at all. Performance-based grants are more difficult to plan around because the number of shares (and therefore, your income) is not fully predictable. If a meaningful portion of your equity compensation is tied to performance metrics, understanding the specific terms of your grant matters for your equity compensation financial planning.

Double-Trigger Vesting: What It Means at Private Companies

Double-trigger vesting is most common at private companies and pre-IPO startups. It means two separate conditions must be met before shares vest. The first trigger is typically time-based: you stay at the company long enough. The second trigger is usually a liquidity event, such as an acquisition or an IPO. This structure has completely different implications. You can work at a private company for years and still have no shares because the second trigger has not occurred. And if no liquidity event ever happens, the shares may have no value. Double-trigger vesting deserves its own dedicated post, which is the next one in this series. If you are currently at a private company or startup, that post is worth reading carefully.

Refresher Grants

One more vesting concept worth understanding is the refresher grant. As your original RSU grant vests out, many companies issue additional grants to keep your equity balance meaningful and maintain retention incentives. Refresher grants have their own vesting schedules, typically shorter than the original grant. Over time, you may find yourself holding multiple overlapping grants, with each having a different vesting schedule. This layering effect is one of the reasons RSU planning becomes more complex the longer you stay at a company. Keeping a clear picture of all your grants: their grant dates, vest dates, and current values, is a must to properly plan your finances.

How to Find Your Vesting Schedule

You can find the details of your vesting schedule on your grant agreement. If you cannot locate it, your company’s equity plan administrator or HR team can provide it. Many companies also make grant details available through an equity management platform such as Carta, Fidelity, Morgan Stanley, or Schwab. If you have multiple grants, each one may have its own schedule. Do not assume they are all structured the same way.